GDP projection based on market interest rate expectations

Bank of England Governor Mervyn King said today that the rate-setting Monetary Policy Committee (MPC)  is prepared to cut interest rates as low as needed to prevent a recession from fueling deflationary pressures. Meanwhile, the Office for National Statistics (ONS) said today that the unemployment rate was 5.8 per cent in the three months to October, up 0.4 percentage points from the previous quarter. The number of unemployed people increased by 140,000 over the quarter.

Governor King said today on the possibility of zero interest rates, that policy makers ``are prepared to cut bank rate to whatever level is necessary'' to make sure inflation hits the central bank's target. The Bank of England's forecasts, published today, said inflation may slow ``well below'' their 2 percent goal in 2009.

The pound fell to a record low against the euro after King forecast a deepening recession. The bank has already reduced the benchmark rate twice in the last month, reducing it by 1 1/2 percentage points last week 3 percent - - the lowest since 1955.

Indicators have worsened since the acceleration of financial turmoil from mid-September. Unemployment has risen at the fastest rate in 16 years in October; house prices have fallen to 25-year lows and manufacturing is in its worst recession since the early 1980s.

Today, the pound pound fell to 82.38 pence per euro.

The deterioration in sterling can be ``a helpful part of the rebalancing, provided it doesn't affect our ability to meet the inflation target,'' King said. The bank has ``no wish to see it fall very sharply.''

The Bank of England's forecasts show the UK economy will shrink through 2009 and inflation will slow below the government's 1 percent minimum unless it cuts rates further.

The Governor said that ``the world has changed'' since the collapse of US investment bank Lehman Brothers in September.

``We have seen the biggest banking crisis since the outbreak for the First World War and arguably even bigger than that,''he said.

King said that while the UK faces ``unprecedented times,'' the economy may improve as soon as next year.

``I think 2009 will be a difficult year but I would hope that by the end of that we would start to see clear signs of improvement,''he said.

``When the facts change, then we'll change bank rate,'' King said. ``That's what we've done, and we're ready to do it again.''

The ONS said today that earnings annual growth rate (including bonuses) was 3.3 per cent, down 0.1 on the previous period. The earnings annual growth rate (excluding bonuses) was 3.6 per cent, unchanged on the previous period.

The number of people in full-time employment was 21.91 million in the three months to September 2008, down 106,000 from the three months to June 2008. Of this total, 14.03 million were men, down 104,000 over the quarter, and 7.88 million were women, down 2,000 over the quarter.